Baidu, Inc.

Hello and thank you for standing by for Baidu's first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I'll now like to turn the meeting over to your host for today's conference, Juan Lin, Baidu's Director of Investor Relations.

Hello, everyone, and welcome to Baidu's first quarter 2021 earnings conference call. Baidu's earnings release was distributed earlier today, and you can find a copy on our website as well as on Newswire Services. On the call today, we have Robin Li, our co-founder and CEO, Herman Yu, our CFO, and Do Shen, our EVP in charge of session feed. After our prepared remarks, we will hold a Q&A session. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and other documents filed with ICC and Hong Kong Exchange. Baidu does not undertake any obligation to update any forward-looking statement except as required under applicable law. Our earnings press release and this call includes discussion of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures, and it's available on our IR website at ir.baidu.com. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will also be available on Baidu's IR website. I will now turn the call over to our CEO, Robin.

Hello, everyone. We delivered strong results in the first quarter, with Baidu core revenue growing 34% year-over-year to RMB $20.5 billion. Our business was strong across the board, particularly in our new AI business, including cloud, smart transportation, and intelligent driving. Non-advertising revenues within Baidu Core rose 70% year-over-year to RMB 4.2 billion, accounting for 21% of Baidu Core. China held the two-session annual congressional gathering in early March. and technology innovation was repeatedly mentioned. It was emphasized that never in the history of China has innovation been more important to the development of China. China's pursuit of innovation through technology to boost long-term growth and productivity will further expand the use of AI. We have witnessed AI platforms for AI-powered infrastructure enabling applications, disrupting markets. For example, we entered the smart device market three years ago, despite two dominant market leaders with strong manufacturing and distribution capabilities. We leveraged Baidu's leading AI technology, including natural language processing and speech recognition, to make dual OS smart assistant understand humans better. This, in turn, has resulted in making Xiaodu smart display number one in shipment globally. We further changed the market dynamics by introducing smart devices over RMB 1000 compared to the sub-RMB 100 devices that our peers focused on. AI-powered platforms are changing the technology landscape New vehicles are being equipped with sensors and AI capabilities both internally and externally to provide intelligent driving and in-vehicle infotainment. Apollo serves as the AI platform that powers the two critical functions of intelligent vehicles. Apollo Autonomous Driving is making new breakthroughs and over 1.5 million vehicles have been sold in China pre-installed with Dual OS for Auto. Installation of Dual OS for Auto saw continued strength in the first quarter, growing over 100% year over year. According to IHS, over 50% of the vehicles sold in China this year are expected to be connected. and the percentage is expected to rise. We are excited to be deploying V2X vehicle-to-road infrastructure across China, which enables connected vehicles to be more intelligent. Just as the continuous upgrade of telecom networks since 2G has enabled mobile phones to become better and smarter, we believe Apollo smart transportation infrastructure can be continuously upgraded to make connected vehicles more convenient, safer, greener, and in general, more intelligent over time. As we build Apollo V2X infrastructure in cities across China, we are getting requests to expand our smart transportation offering through greater use of AI into math and solutions to digitize public parking and highways. The expansion of Apollo Smart Transportation beyond B2X into different facets of transportation in metropolitans and highways leading into them will create a powerful network effect when the solutions are integrated and synchronized on a transportation network powered by B2Brain. Our development of paths for different industries and empowering our ad customers with Marketing Cloud are further examples of how AI platforms are changing industry dynamics from digital transformation to mobile internet. On the latter, we have a big opportunity to expand online marketing from selling traffic to empowering merchants with AI-powered Marketing Cloud. and improve search to transaction conversion. Our strong internet foundation, coupled with growing user engagement, provide us with another driver for non-advertising growth. Turning to Q1 operational highlights, our AI cloud continues to see strong adoption due to our holistic approach, including a large developer community, self-designed chips, best-in-class machine learning services, and large AI patent portfolio. With increasing AI adoption in China, Baidu Pedopedo has become a top-one deep learning framework globally in terms of pull requests, alongside with Facebook PyHodge and Google TensorFlow, according to GitHub. We have spent years in developing AI chips, to optimize workload and improve cloud cost structure. With external demand for GPU chips, Baidu Kunlun completed its first round of funding at a post-money valuation of US dollar 2 billion in April this year. Baidu EZDL, a simple-to-use machine learning service for non-developers, was rated number one in terms of usage in China per IDC. topping the list for the second time. Customers are telling us that they are choosing Baidu due to us having the largest AI patent portfolio in China. Baidu's decade-long experience with AI technology and our large patent portfolio give customers the confidence that we can deliver end-to-end cloud solutions with PaaS and SaaS that meet their needs. Last quarter, we illustrated AI solutions that were scalable and replicable across different industries, such as our automated AI call center. We are also seeing customers who implement Baidu AI Path return for repeat purchases. For example, we helped a major retail bank in China implement Baidu AI Path, which has led to five follow-on purchases. including application to automate customer service and customer loan approval, and the recent purchase of a private cloud service. In the media sector, we partnered with online arm of China's largest TV network, CCTV, to implement Baidu AI Path. Its capabilities to automate video clip creation and tagging from live broadcasting and use smart assistant to quickly locate desired video content. During the two sessions, we enabled cct.com to interview congressional meeting participants with AI reporters, powered by Vidal Brain, and to timely share these interviews on the internet. Smart transportation is becoming a way to digitize the transportation industry in China. to improve traffic condition and road safety, and reduce carbon emission. Our V2X vehicle-to-road infrastructure has helped reduce traffic congestion time by 20 to 30 percent. Chongqing, which implemented Apollo V2X last year and opened the door for Apollo into western China, re-engaged with us this year to make their smart transportation infrastructure 5G-enabled, laying the foundation for a future rollout of Robotaxi ride-hailing. Chengdu, the capital of Sichuan, and a leader in science and technology development, recently partnered with Apollo to implement V2X2. Turning to intelligent driving, Since its founding eight years ago, Apollo has accumulated over six million miles of level four autonomous driving testing miles on the road and over 600 million miles of simulated testing. Apollo continues to be the leader in autonomous driving in China with our early investment, open platform strategy, and comprehensive technology infrastructure. With Apollo Autonomous Driving can operate independently on vehicle sensors. It is uniquely empowered by Baidu's HD maps, our AI cloud, and Apollo smart transportation. The comprehensive data set and integration with the city's smart transportation network, we believe, will enable Apollo to offer better driving behavior and reduce incident rate. Following the opening up of highway testing for autonomous driving in January, Apollo received the permit to operate at night and under special weather conditions on public roads in Beijing. Apollo also received a permit to pilot fully autonomous driving in Beijing, Changzhou, and Changsha. Apollo Go, China's first fully autonomous driving heating service, with no one in the driver's seat, is now open to the public at the Shougang Park, a Beijing 2022 Winter Olympics site. Rides are priced at 13 RMB each. In March, ApolloGo began to charge the robo-taxi ride hailing in Tangzhou based on the distance traveled starting with a minimum fare similar to regular ride hailing. Jidu Auto, an intelligent EV company established in partnership with Geely has appointed Xia Yiping as CEO. Yiping previously served as CTO at Mobeck and worked various positions at Fiat, Chrysler, and Ford. We welcome Yiping to the Baidu family and look forward to his contribution to innovate the smart EV sector. Apollo Self-Driving GAC Group joins Apollo's network of over 10 leading local and multinational automakers to install ASD services in its new vehicles. According to China Insights Consultancy, a market research and consulting firm, the TAM for Apollo Intelligent Driving, which includes robot taxi ride-hailing, EVs, and self-driving services for automakers, well-reached US dollar $467 billion, almost nine times the size of our advertising talent of $53 billion in 2025. Apollo platform powers Jidoo and other automakers, as well as Apollo Go Robotaxi. It is in a unique position to be well-funded and widely adopted. Such coveted position has earned Baidu the only Chinese company selected for the leader category in autonomous driving by GuideHouse Insights, previously known as Navigant Research, for the second consecutive year. Turning to mobile ecosystem, in March, Baidu app MAUs reached 558 million. Creators on Baidu more than doubled. and the number of smart mini programs grows 74% from a year ago. Our AI building blocks, coupled with our marketing cloud, continue to attract more third-party content and service providers onto our platform, which improves user experience. Merchants are adopting our direct-to-consumer model to get closer to their customers. Traditional e-commerce tends to accentuates its platform over the strengthening of individual brands and merchants. Baidu, on the other hand, empowers merchants to build their own online presence and grow their brand by leveraging our social and live streaming capabilities, e-commerce features, and AI tools from our marketing cloud. Our AI building blocks, coupled with marketing cloud, help merchants acquire customers better understand them, engage with them, and perform lifetime customer management. Such search-to-transaction closed-loop experience improves user stickiness, resulting in daily log users on Baidu app reaching over 75%. That's up 16 points from a year ago. Social and interest-based communities. Our search users sometimes have questions on their search results. With professional content providers like attorneys and designers opening enterprise accounts on Baijia Hao, they are able to respond to search queries and interact directly with users. 8% of our top one search results now enable users to ask questions and interact with the original content provider. Baidu Health has attracted approximately 300,000 doctors and medical experts to provide in-depth authoritative content and online consultation to consumers. As our users adapt to more services on Baidu, we see a great opportunity to offer non-ad services of our own to meet the needs of our large user base. When you couple this with the robust growth of our AI business, non-advertising revenue could possibly exceed advertising revenue within Baidu Core in the next three years. With that, let me turn the call over to Herman to go through our financial highlights.